Exam 11: Sole Proprietorships and Flow-Through Entities

Sam has $80,000 of net income from his sole proprietorship in 2018. What is his deduction for AGI for self-employment taxes?

Duet Co. is a calendar year S Corporation owned equally by Patricia and Scott. Duet Co. had taxable income of $40,000 for the current year. Patricia and Scott each received distributions from Duet Co. of $5,000. What is Patricia's taxable income from Duet Co. for the current year?

Candi purchased a 10 percent limited partnership interest in rental property for $30,000. The partnership has a $1,300,000 mortgage that is secured by the building. During the current year, the partnership reports a total loss of $200,000 from the rental building. What is Candi's deductible loss and the amount of her loss carryover if her only other income/loss items are $50,000 in salary, an $8,000 capital loss on some stock, and $5,000 of bond interest income?

Carol owns 40 percent of CJ Partnership. The partnership reports $170,000 of revenue, $60,000 cost of goods sold, and $70,000 of other expenses that include a $2,000 charitable contribution and a $5,000 Section 179 deduction. CJ Partnership also paid $1,500 of doctor bills for Carol, What is the ordinary business income reported on line 1 of Carol's Schedule K-1?

Ray, Ronnie and Joe are partners in a limited partnership. Ray and Ronnie, the limited partners, each own 45 percent of the partnership and Joe, the general partner, owns the other 10 percent. The partnership incurs $50,000 of nonrecourse debt and $100,000 of recourse debt. What is the effect on Joe's basis for these debts?

Recourse debts can only be satisfied with the property used as collateral.

A general partner in a limited partnership is not protected from the partnership's liabilities.

Sabrina is single and has taxable income of $195,700 of which $140,000 is attributable to her consulting sole proprietorship. She paid W-2 pages to her employees of $75,000. If the threshold amount for 2018 is $157,500, what is Sabrina's qualified business income deduction?

The Dominguez Partnership has the following assets on December 31: Antonio is a 20 percent partner and has a $7,000 basis in his partnership interest. The partnership has no liabilities. Antonio receives a liquidating distribution of $10,000 cash. What is the amount and character of the gain or income Antonio recognizes on this liquidating distribution?

What tax year end must a partnership use?

Logan's basis in his partnership interest is $20,000 when he receives a pro rata nonliquidating distribution from the partnership of $22,000 cash and inventory with a basis of $2,000 and fair market value of $3,000. What is Logan's recognized gain on this distribution?

What is the difference between a limited partnership and a general partnership?

Limited liability companies are generally taxed as partnerships unless the company elects to be taxed as a corporation.

How does a shareholder's basis in his or her S corporation stock change?

What is the difference between recourse and nonrecourse debt for a partnership?

Other Objective Questions Indicate by a PRP if the characteristic applies to a sole proprietorship, an SC if it applies to an S corporation, and a PAR if it applies to a partnership, and N if it does not apply to any of the three businesses. A characteristic can apply to more than one entity; write a brief explanation if a characteristic may only apply under certain conditions. -Loss recognized on entity liquidation.

The Walden Partnership has two 20 percent general partners and six 10 percent limited partners. During the current year, the partnership paid off $50,000 of notes payable, purchased machinery for $100,000 on a nonrecourse note, borrowed $20,000 for working capital, and had $80,000 income from operations. If one of the limited partners had a $10,000 basis at the beginning of the year, what is his year-end basis?

Other Objective Questions Indicate by a PRP if the characteristic applies to a sole proprietorship, an SC if it applies to an S corporation, and a PAR if it applies to a partnership, and N if it does not apply to any of the three businesses. A characteristic can apply to more than one entity; write a brief explanation if a characteristic may only apply under certain conditions. -Owners may participate in all tax-free employee fringe benefits.

The AAA of the S corporation is a corporate-level account.

Calvin sells his 40 percent interest in a partnership with a $70,000 basis for $75,000. The partnership has two assets, inventory valued at $100,000 with a $50,000 basis and investments valued at $87,500 that have a basis of $125,000. How will Calvin report the sale of the partnership interest?